U.S. stocks came off from some of the lowest levels of the day, but most remained in negative territory Wednesday after minutes from the Federal Reserve’s July meeting indicated that conditions for raising rates for the first time in nearly a decade are “approaching.”
Earlier, stocks sold off, with the S&P 500 briefly falling below the 200-day moving average, a key technical level, as a plunge in oil prices hit energy shares.
The minutes from the meeting of the central bank’s Federal Open Market Committee, or FOMC, suggested that a September rate increase may be on the table, while noting that a minority of the policy makers recommended caution as global markets face headwinds from a slowdown in China, which has pummeled commodity prices.
The initial market reaction suggested that investors interpreted the minutes as dovish, with the odds of a September rate hike a little lower, according to analysts.
The Fed minutes came out ahead of schedule after a 2 p.m. Eastern embargo set by the Fed was broken.
The S&P 500 SPX, -0.57% was off 15 points, or 0.7%, to 2,082 with nine of its 10 main sectors trading lower. The energy sector was hit hardest after oil prices plunged to new lows following an increase in crude supplies. The S&P 500 energy sector was down more than 2%.
The Dow Jones Industrial Average DJIA, -0.66% was down 135 points, or 0.8%, at 17,376, dragged lower by a fall in shares of energy giant Chevron Corp. CVX, -2.70%which was off 2.3% and hit a 52-week intraday low.
The Nasdaq Composite Index COMP, -0.55% shaved off 32 points, or 0.6%, to 5,027.
Brian Fenske, head of sales trading at ITG, said trading volumes of the S&P 500 were 25% higher than they were on Tuesday and were still dominated by headlines and economic news.
“Investors are concerned about China, emerging markets and with one of the biggest daily moves in oil, it is hard to see stocks rise. But relatively speaking, the moves are still not big,” he said.
“Markets interpreted the minutes as more dovish than not, with the odds of a rate hike in September reduced slightly,” he said.
Earlier, a report showed the consumer-price index rose a seasonally adjusted 0.1% in July, up for the sixth straight month. The increase, however, was lower than expected by the economists polled by MarketWatch.
While inflation remains below the Fed’s desired target of 2%, some of the members were still worried that delaying rate increases would result in a pickup in inflation.
Fed minutes show members STILL worried abt undesirable pickup in inflation. In last 15 yrs, CPI > 4% just 7% of time. pic.twitter.com/6UbwyEkyv5
— Dan Greenhaus (@DanBTIG) August 19, 2015
“At this points I am more concerned about a slowing economy rather than a growing economy. The Fed is not likely to tighten credit unless they think the economy overheating. Right now the risk is that it’s too cold, rather than too hot,” said John Manley, chief equity strategist at Wells Fargo Advantage Funds.
Manley is still constructive on stocks, however. “We don’t think valuations are too high and profit growth is likely to pick up as the economy continues to expand,” he said.
The market has been sifting through a mixed batch of data this week, including strong housing reports and corporate earnings that haven’t been particularly stellar.
Large retailer Target Corp. TGT, +1.01% posted strong second-quarter results and lifted its full-year outlook. Shares rose 0.8%.
Lowe’s Cos. Inc. LOW, +2.00% shares rose 0.9% even as the home-improvement retailer posted weaker-than-expected earnings for its second quarter.
Staples Inc. SPLS, +0.04% delivered quarterly profit that matched forecasts, but revenue came in at $4.94 billion, below the FactSet consensus forecast of $4.96 billion. Shares slipped.
The U.S. oil benchmark CLU5, -4.69% fell nearly 5% to $41.06 a barrel after the U.S. Energy Information Administration on Wednesday reported an increase in weekly crude supplies. Energy companies were among the biggest losers on the S&P 500.
Marathon Oil Corp MRO, -6.81% and Anadarko Petroleum Corp APC, -5.28% fell 5% and 4% respectively.
Key economic reports: Higher housing costs helped nudge up consumer prices in July, but inflation is still generally muted, fresh government data showed. Food prices climbed 0.2% as the cost of all major grocery groups increased. Energy prices rose a smaller 0.1%. Excluding food and energy, so-called core consumer prices advanced 0.1% in July.
Other markets: Treasury yields declined Wednesday afternoon. The 10-year Treasury yield was trading down 7 basis points on the day at 2.12%.
A steep drop in China shares SHCOMP, +1.23% flipped to gains by the close on Wednesday. European equities SXXP, -1.76% mostly dropped, with China worries getting much of the blame.
Gold futures GCZ5, +1.46% gained. The dollar DXY, -0.61% slipped against its major rivals.